ECB’s Knot: ‘Too Early to Declare Victory Over Inflation’

14 March 2024

By Isabel Teles – FRANKFURT (Econostream) – European Central Bank Governing Council member Klaas Knot on Thursday said that were still risks to the economic outlook and that it was not yet the moment to consider the fight against inflation won.  

Speaking at the release of the 2023 Annual Report of De Nederlandsche Bank, which he heads, Knot said, according to a text provided, that the persistence of risks 'means it is too early to declare victory over inflation. The ECB's policy is therefore to ensure that the decline in inflation continues and that we remain on track to return to the 2% target in 2025 at the latest.’

‘The economic outlook for the year ahead is accompanied by a number of risks. For example, inflation may develop less favourably than we currently expect, possibly because the slowdown in wage cost growth may not keep pace with falling inflation or due to a renewed spike in energy prices’, he elaborated.

Inflation decreased in the past year, indicating that the ECB’s monetary policy was working, he said, noting that the process had caused ‘limited damage to the economy’ so far.

‘[A] real recession has been averted, despite three consecutive quarters of slight contraction’, he said. ‘This period of below-potential growth is needed to bring inflation back to the 2% target.’

The effect of monetary was ‘pronounced’ in dampening demand, he said. ‘This is necessary to bring inflation down.’

‘Prices still rose by 4.1% in the year under review. We expect inflation of 2.9% in 2024, decreasing to below 2% by year-end 2025’, he said.

The labour market was still ‘as tight as ever’ and negotiated wages were expected to increase further, he said, which was historically significant since wage increases were higher than inflation.